Power Distance Index Profits

Power can bring profits in many ways… the first via the Power Distance Index.

I recently wrote in Ecuador shamans and truth how Merri and I have been drawn more and more back to the USA. We have enjoyed phenomenal success in Ecuador but we are pioneers… Our investments and business are early in and early out. Ecuador is now really well on its way and for us this is not so fun.

We’ll look at how the Power Distance Index makes Ecuador living better. First more on PDI.

We’ll still enjoy time in Cotacachi and on the Pacific, but we are arranging for others to take over the day to day so we can head off on a new adventure.

Part of our next horizon is to make our North Carolina farm much more self sustainable and to share what we learn in the process.

Thinking about this leads me to share some other thoughts on power and the Power Distance Index.

One powerful investing and business idea is to invest in countries with a low Power Distance Index (PDI).

Malcom Gladwell explains this in his newest book “Outliers” a book about what makes success.

One part of the book looks at the importance of the Power Distance Index in each nation. This is vital information because it explains how countries differ in their approach to dealing with risk and uncertainty. The ability to handle risk and uncertainty in changing times is vital.

Here is how the websitewww.kwintessential.co.uk describes PDI.

The Power Distance Index (PDI) is one of the five intercultural dimensions developed by Hofstede. In short this cultural dimension looks at how much a culture does or does not value hierarchical relationships and respect for authority.

Examples of cultures with high PDI scores include Arabic speaking countries, Russia, India and China. Those with low scores include Japan, Australia and Canada. See a world map of power distance index scores.

So how does this manifest in a culture or country?

In a high power distance cultures the following may be observed:

. Those in authority openly demonstrate their rank.
. Subordinates are not given important work and expect clear guidance from above.
. Subordinates are expected to take the blame for things going wrong.
. The relationship between boss and subordinate is rarely close/personal.
. Politics is prone to totalitarianism.
. Class divisions within society are accepted.

In a low power distance culture:

. Superiors treat subordinates with respect and do not pull rank.
. Subordinates are entrusted with important assignments.
. Blame is either shared or very often accepted by the superior due to it being their responsibility to manage.
. Managers may often socialize with subordinates.
. Liberal democracies are the norm.
. Societies lean more towards egalitarianism.

The Power Distance Index is a measure of the attitude toward hierarchy. In short the PDI shows how much people overall, in a country, respect authority.

This index is really important in this rapid changing world because authority almost always lags behind reality. Authority resists required change to adapt in altering conditions. Countries with a high PDI suffer from change.

For example the US has a low PDI. Russia has a very high PDI. Thus during the changing 1980s the Soviet Union disintegrated while the US rebounded and thrived. PDI differences were not the only reasons for this but when a nation’s leadership cannot communicate with its people… it cannot sense reality as times shift.

On the subject of the 1980s. Many readers are worried about the current economic downturn. Current conditions are not as poor as during the twin recessions of the 1980s, when unemployment exceeded 10 percent. This downturn is on track to be worse… but not yet.

Gladwell writes in “Outliers:: In low power index countries, power is something is something in which power holders are almost ashamed and will try to underplay. In Austria (a low PDI country) Prime Minister Bruno Kreiskt was known to sometimes take a streetcar to work.

Here are six countries with high PDIs:Brazil
South Korea
Russia
Mexico
Philippines
Uruguay

Six Countries with low PDIs:
Austria
Denmark
United States
Ireland
Australia
New Zealand

A low PDI can help a country adapt faster and better to change, so look for investments in countries with low PDIs.

This message is an excerpt from our latest multi currency lesson. You can read what to do now as a multi currency subscriber. Learn how to subscribe here.

However countries with high PDIs are often better for living.

I was thinking about this one recent morning while visiting Quito. This is one of the world’s beautiful cities so I rose to watch the dawn. The day broke in glorious rose patina.

Like the days ahead… the view was obscured until the light began…

to reveal Quito’s beauty.

Ecuador’s Power Distance Index in Ecuador is a bit high. This does not stop a great city from growing. I loked out and saw that there was plenty here. Riches enough. All the …

creature comforts…

glowing in the daybreak. Every material thing a person could want…

As the light spread, i dressed and rode up to the hotel restaurant.

I’ll looked out at Quito again in the light of day.

There is amazing wealth here. The hotel restaurant is opulent.

With amazing views around the city. yet the prices here are low in part because…

poor government is created with the help of a high Power distance Index. This keeps most of the people in Ecuador poor. This means that we can help bring and spending our money here. This who do, help Ecuador’s poor and are rewarded with good living at a low price.

Live in one country
Bank in a second country
Invest in many countries
Earn in two or more countries
Use a company incorporated in a fifth country
Take a second residence

On the subject of banking abroad Denmark has the second lowest PDI in the world (Austria is number one) so it is not surprising that for the last 20 years my major bankers have been in Copenhagen and Vienna. I like the autonomy that investment advisers have in low PDI countries.

This is in my estimation one reason why Jyske Bank (Denmark’s second largest bank) was not caught in the sub prime or Madoff scandals.

Bank’s in countries with a low PDI are more likely to use the wisdom of their entire organization to head off trouble at the pass.

Organizations have enormous wisdom.

The book, “The Wisdom of Crowds, Why the Many are Smarter than the Few and How Collective Wisdom Shapes Business, Economies and Societies and Nations” by James Surowiecki tells how potent the wisdom of a group can be.

The book begins by telling how at the annual West of England Fat Stock and Poultry Exhibition in the fall of 1906, a British scientist became interested in a weight judging competition. 800 people, smart, dumb, old, young in all types of professions guessed the weight of two dressed oxen. The correct answer was 1,197 pounds. The scientist’s research found that the collective estimate was incredibly close, 1,198 pounds.

The book suggests that there is an uncanny and generally unconscious collective intelligence at work. The book shows how clouds of birds seem to move in one mind but actually are each acting on their own following four simple rules:

#1) Stay as close to the center as possible.

#2) Stay two body lengths away from your neighbor.

#3) Do not bump into another bird.

#4) If a predator dives at you get out of the way.

The book suggests that rather than crowds being mindless mobs that the many are weirdly smart and effective even when many of the group are average or below in intelligence or experience.

A key point that the article makes is that there is incredible effectiveness in a diversity of individual intelligences and this is why we are sharing ideas about trends at this site. There are thousands of us reading these messages so perhaps our problem solving ability grows to the 4000th power.

However if a high PDI disconnects its leaders from this wisdom… the organization’s wisdom is wasted.

Bank safety is vital now and PDI can count. Here is a wonderful shot taken by our friend Dennis Goff. Placid… yet most travel accidents… in air and by oat are caused by a high PDI. The Captain does not listen to his crew!

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